N00 - Economic History: GeneralReturn

This paper demonstrates that increasing returns to scale can be sustained when agents care about praiseworthiness of their conduct. Unlike the desire to attain approbation from external sources, the notion of praiseworthiness seems to have been neglected by contemporary economic literature. Yet the relevance of praiseworthiness as an internal motivational force was stressed by a number of classical economists. We construct an endogenous growth model in which agents derive utility not only from their consumption but also from praiseworthiness of their action. In such a setting, the motivation by praiseworthiness is able to generate positive and accelerating growth of output per labourer in steady state. The main implication of our model is that the existence of increasing returns depends critically on presence of sufficient approbation attributed to creativity. Furthermore, the presence or the absence of these rewards may be susceptible to explain the cross-sectional differences in growth rates, growth miracles and growth disasters.